William Greider: Why the Federal Reserve Needs an Overhaul

[marmar]

from The Nation:


Why the Federal Reserve Needs an Overhaul
This 100-year-old antique is undemocratic, too close to elite banking interests and often blind to the economic conditions that affect most Americans.

William Greider
February 12, 2014


The Federal Reserve is celebrating its 100th birthday with due modesty, given the Fed’s complicity in generating the recent financial crisis and its inability to adequately resuscitate the still-troubled economy. Woodrow Wilson signed the original Federal Reserve Act on December 23, 1913. Eleven months later, the Federal Reserve System’s twelve regional banks opened for business. But in a sense the central bank was born in the autumn of 1907, when another devastating financial crisis swept the nation, destroying banks, businesses and farmers on a frightening scale.

J.P. Morgan and his fraternity of New York bankers intervened with brutal decisiveness in the efforts to halt the Panic of 1907, choosing which banks would fail and which would survive. Afterward, Morgan was hailed in elite circles as a heroic figure who had saved the country and free-market capitalism. The nostalgia for Morgan was misplaced, however: as insiders knew, the real story of 1907 was that Washington intervened to save Wall Street—the twentieth century’s own inaugural bailout.

.......(snip).......

A hundred years later, the country seems to have circled back to the very same arguments. We are confronted again by the financial destructiveness the Fed was supposed to eliminate. Despite some worthy reforms that centralized power in Washington, bankers still run wild on occasion, ignoring restraints and spreading misery in their wake. The Fed still rushes to their rescue with lots of money—public money. And people at large still pay a terrible price for official indulgence of this very privileged sector.

So this is my brief for fundamental reform: dismantle the peculiar arrangement and democratize it. The Federal Reserve has always been a glaring contradiction of democratic values. After a century of experience, we should be able to conclude from events that the system simply doesn’t work. Or rather, it does very well for bankers, but not for ordinary citizens. The economy does require a governing authority—Fed advocates are right about that—but it suffers from the Fed’s incestuous relationship with Wall Street bankers. My solution: throw open the doors, let the people into the conversation and the decision-making. The untutored ranks of citizens are as fallible as any economist, but they often know things about economic reality well before the experts. .....................(more)

The complete piece is at: http://www.thenation.com/article/178366/why-federal-reserve-needs-overhaul

[Benton D Struckcheon]

1. The Fed needs to be made a subsidiary of the FDIC

It was made obsolete the day the FDIC began operation.
It's largely ineffective, and in the rare instances when it does actually affect something in the real economy, it usually makes the situation worse.
My post on the Fed, from a while back, which goes into excruciating detail into what it does and how the evidence shows it has no real effect on interest rates: http://www.democraticunderground.com/10024035411
That being the case, and its function as lender of last resort in a crisis having long ago been taken over by the FDIC, it has no reason to exist in the form it does. Greider is right re one thing it does with some effectiveness: lobby for its member banks, especially the large ones, of course. Like I said, in the few instances where it is effective, its effect is largely counterproductive.